Rents soar as high interest rates shut out buyers
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Residential rents across Britain are rising at their fastest pace on record as high interest rates shut buyers out of the property market, prompting sellers to slash their asking prices.
New data from estate and letting agent Hamptons this morning show that the average rent on a newly-let property has jumped by 12% in the year to August, the fastest since its index began in 2014.
This pushed the average monthly rent on a newly-let home in August to £1,304, less than a year after it hit £1,200 for the first time.
Aneisha Beveridge, head of research at Hamptons, said:
“Each passing month has ushered in a new rental market record. Rents have risen more in the last 12 months than they did between 2015 and 2019.
“While the current pace of rental growth is unsustainable long term, many mortgaged landlords are being squeezed just as tightly as tenants.”
Landlords, who have been hit by the increase in UK interest rate over the last 20 months, have responded by pushing up rents paid by tenants, where they can.
Beveridge adds:
“Higher rents are only going some way towards helping mortgaged landlords balance their books, rather than boosting their profit. This is one of the reasons we haven’t seen large numbers of new landlords come into the market.”
The jump in borrowing costs has also made it harder for tenants to buy their own home instead of renting, with average fixed-rate mortgages over 6%.
The resulting slowdown is prompting many sellers to slash their asking prices. New data from Rightmove morning shows that the proportion of homes on the market reduced in price has hit the highest since January 2011 (more on that shortly).
But overall, asking prices for new homes rose 0.4% in the last month, though were 0.4% lower than a year ago.
The Rightmove index is just new listings.
They also report “36.3% of properties currently for sale have had a price reduction, with an average reduction equating to £22,700 nationally (6.2%)” https://t.co/wQjlGCRpUp— Neal Hudson (@resi_analyst) September 18, 2023
This comes at the start of a busy week for central bankers.
On Thursday, the Bank of England is expected to raise UK interest rates for the 15th time in a row, from 5.25% to 5.5%, as it continues to battle inflation.
But that could be the final hike in the current cycle, with the BoE’s Monetary Policy Committee hopeful that inflation will fall markedly by the end of this year.
Philip Shaw of Investec says:
The committee’s deliberations are set against a background where inflation has trended lower and the economy appears to be weakening, with surveys hinting the service sector may be following manufacturing into a downturn.
The agenda
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10am BST: Germany’s Bundesbank to release monthly report
-
10am BST: Liz Truss speaks about her plans for economic growth at Institute for Government
-
3pm BST: NAHB/Wells Fargo US housing market index
Key events
House price growth in Ireland has slowed.
Irish house price growth slipped year-on-year in July to its lowest rate in almost three years, increasing by 1.5%, data from the Central Statistics Office shows.
Prices in Dublin decreased by 1.4% year on year, while prices outside Dublin rose by 3.8%.
On a monthly basis, prices rose 0.3% in July, adding to gains in June, after dropping from January to May.
The number of sales fell year-on-year too, as Niall Corkery, Statistician in the Prices Division, explains:
In July 2023, 4,174 dwelling purchases by households at market prices were filed with the Revenue Commissioners, a decrease of 6.1% compared with the 4,443 purchases in July 2022.
People and businesses could be harmed by the new wave of artificial intelligence systems if competition is weak or developers fail to heed consumer protection law, the UK’s competition watchdog has warned.
The Competition and Markets Authority fears that people could be exposed to significant levels of false and misleading information and AI-enabled fraud.
In the longer term, the CMA warns, a handful of firms could use foundation models (FMs) such as ChatGPT to gain or entrench positions of market power and fail to offer the best products and services, or charge high prices.
The CMA is proposing new ‘guiding principles’:
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Accountability – FM developers and deployers are accountable for outputs provided to consumers.
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Access – ongoing ready access to key inputs, without unnecessary restrictions.
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Diversity – sustained diversity of business models, including both open and closed.
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Choice – sufficient choice for businesses so they can decide how to use FMs.
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Flexibility – having the flexibility to switch and/or use multiple FMs according to need.
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Fair dealing – no anti-competitive conduct including anti-competitive self-preferencing, tying or bundling.
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Transparency – consumers and businesses are given information about the risks and limitations of FM-generated content so they can make informed choices.
In the financial markets, the pound has touched its lowest level since early June.
Sterling slipped to $1.2368 against the pound, a 15-week low.
Back in mid-July, the pound was trading over $1.31, but it has slipped back following signs that UK inflation was falling.
That would take pressure off the Bank of England to raise borrowing costs, with interest rates now expected to peak at 5.5%, not over 6% as feared this summer (they’re 5.25% at present, but may rise on Thursday).
Sorrell’s S4 cutting jobs after downgrading outlook again
Mark Sweney
Digital marketing group S4 Capital has cut 500 jobs after revenues and profits were hit by a cut in spending by fearful clients.
S4’s shares are now down 27% after cutting its annual forecast this morning (see earlier post).
The company said that it has cut the number of employees – known as Monks – from 9,041 to 8,550 at the end of June compared to the same point last year.
S4 Capital said that it has seen inflation in staff costs and higher IT costs with more job cuts looming as the company said the it would “continue to take action, especially in its content division, “given the current market outlook”.
The company relies on technology clients, which have reigned in spending, which accounted for just under 50% of total revenues last year.
“Advertising agencies are at the mercy of the economy,” said Russ Mould, investment director AJ Bell.
“Martin Sorrell’s digital advertising agency is currently suffering from subdued client activity – its customers are worried about recession so they are cautious about signing off big advertising campaigns.”
Some early key points from the Liz Truss speech (full coverage here).
???????? Liz Truss blames the “reaction” from the “political and economic establishment” to her policies as the reason they failed
— Bethany Dawson (@bethanymrd) September 18, 2023
It’s almost a year since Liz Truss’s government crashed the bond market, and the pound, with the ill-planned mini budget.
And today, former PM Truss is giving a speech defending that fiscal event, denying she is to blame for the UK’s current economic problems.
Truss is expected to argue that “25 years of economic consensus” are to blame, and say:
“I believe that the reason for the problems we have is the 25 years of economic consensus that have led us to this period of stagnation
“And I believe it is vital that we understand that and shatter that economic consensus, if we are to avoid worse problems in the future.”
Truss is also insisting that her planned tax cuts were not unfunded, claiming that cutting the higher rate of Income Tax and the ‘tourist tax’ would have lifted, not cut, tax revenues.
Rupert Harrison, George Osborne’s former chief of staff, argues this is nonsense.
Even on its own terms this still leaves £25 billion of permanent additional borrowing at a time when the main issue was inflation.
But the CEBR costings are also wildly optimistic, and it’s factually incorrect to say that the OBR models are static. pic.twitter.com/i70bvFos8K
— Rupert Harrison (@rbrharrison) September 18, 2023
Our Politics Live blog is tracking all the action:
Susannah Streeter, head of money and markets at Hargreaves Lansdown, agrees that UK interest rates are probably near their peak… but they may not fall until the second half of 2024.
She writes:
The Bank of England is expected to proceed with another hike on Thursday, given that wage inflation is still considered to be far too hot to ignore. Wednesday’s inflation snapshot will be closely watched for signs that core inflation, which strips out the volatile food and energy prices, is still proving sticky.
However, the cost-of-living crisis, high borrowing costs, bad weather and strikes all conspired to cause the economy to contract in July. Residential rents are now rising at their fastest rate on record, chipping away more consumer resilience. Monthly rents are on average 12% higher than they were just a year ago according to Hamptons, as people put off house moves, and competition intensifies, and landlords hit by higher borrowing costs charge more.
The stage is set for more demand to be squeezed out of the economy, which should help limit price rises in the economy going forward. So, the September rate decision may well mark the end of the hiking cycle, given that unemployment has also ticked up, companies are showing more reluctance to hire staff and we have still yet to feel the full effect of previous rate increases.
But higher rates are set to linger given that the 2% inflation target still seems so far away, so right now a cut isn’t expected until at least the second half of next year.
Data provider Moneyfacts reports that the average rate on two-year fixed mortgages has risen today, but five-year fixed loans are a little cheaper.
They say:
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The average 2-year fixed residential mortgage rate today is 6.66%. This is up from an average rate of 6.62% on the previous working day.
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The average 5-year fixed residential mortgage rate today is 6.08%. This is down from an average rate of 6.11% on the previous working day.
Oil has hit its highest level of the year, again, this morning, threatening to undermine the fight against inflation.
Brent crude has gained 0.75% this morning to $94.65 per barrel, the highest since last November.
Some analysts predict oil could hit $100/barrel soon, having climbed by almost a third since June – a move which has already pushed up fuel prices.
In the City, shares in Sir Martin Sorrell’s advertising group S4 Capital have tumbled by a fifth, after it lowered its annual forecast again this morning.
S4 now expects like-for-like net revenue to fall year-on-year, the second cut to its forecasts this summer.
S4, which Sorrell has been building into a new age digital advertising, marketing and technology services company, blames challenging macroeconomic conditions.
This has made its clients more cautious, particularly in the technology space.
Sorrell, executive chairman of S4 Capital, said:
“We had a very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession, which resulted in client caution to commit and extended sales cycles, particularly for larger projects.”
Here’s Victoria Scholar, head of investment at interactive investor, on today’s reports on the UK housing market:
“Rightmove said UK asking prices rose by 0.4% in September after falling by 1.9% in August. However, the rise is below the ten-year average of 0.6%, home sales are down 7% versus 2019 pre-covid and asking price reductions reached a 12-year high. Nonetheless, the property website expects the market to pick up in autumn as mortgage rates ease. It said the number of homes on the market rose by 12% in the first week of September already.
The latest figures from Rightmove point to green shoots of recovery for the housing market with a slight pick-up in asking prices in September, a typically busy back-to-school time of year for housing market transactions after the end of the summer lull and before the festive season begins. While the Bank of England’s aggressive stream of rate hikes have hit borrowing affordability and house prices, mortgage sellers have started to offer more competitive rates to respond to dwindling demand as the central bank gets closer to the end of its tightening cycle. Despite this, it is likely that house prices will cool further this year as the culmination of high inflation, rising interest rates, the cost-of-living crisis and elevated borrowing costs take their toll.
Meanwhile a separate report from Hamptons showed that residential rents in the UK are rising at their fastest pace on record. Average monthly rental costs surpass £1,300 for the first time, jumping 12% year-on-year in August. Clearly the knock-on effect of surging mortgage costs has prompted many would-be buyers to turn towards the lettings market instead as they wait for mortgage rates to come back down again.”
Goldman Sachs has lowered its forecast for peak UK interest to 5.5%, meaning one more increase – this Thursday.
Goldman economists now believe that Bank of England will then leave interest rates on hold at the next meeting in November, rather than hiking again to 5.75%.
They say:
“Looking ahead to the November meeting, we see a greater chance that sequential wage and price pressures will have cooled sufficiently to allow the MPC to go on hold, given their preference for a flatter peak.”
Full story: More house sellers cutting asking prices as market cools
UK house sellers are cutting their asking prices at the fastest rate in more than a decade, after high interest rates dampened demand for property this summer.
The proportion of homes on the market which have had at least one price reduction is at its highest level since January 2011, the property website Rightmove has reported.
According to Rightmove, more than 36% of properties on the market have had their asking price reduced at least once, compared with the pre-pandemic average of 31.2%, as sellers tried to attract offers.
This led to average price reductions of 6.2%, which was also the highest since January 2011, knocking more than £22,000 off average asking prices.
These cuts suggest that some sellers were too optimistic with their initial asking prices and have had to make some bigger than usual adjustments, with the lenders Nationwide and Halifax both reporting that selling prices are falling at the fastest rate since 2009.
“Many a buyer and seller took a break over the summer to get some perspective on the property market,” said the property agent Emma Fildes, founder of Brick Weaver.
More here:
Rents soar as high interest rates shut out buyers
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Residential rents across Britain are rising at their fastest pace on record as high interest rates shut buyers out of the property market, prompting sellers to slash their asking prices.
New data from estate and letting agent Hamptons this morning show that the average rent on a newly-let property has jumped by 12% in the year to August, the fastest since its index began in 2014.
This pushed the average monthly rent on a newly-let home in August to £1,304, less than a year after it hit £1,200 for the first time.
Aneisha Beveridge, head of research at Hamptons, said:
“Each passing month has ushered in a new rental market record. Rents have risen more in the last 12 months than they did between 2015 and 2019.
“While the current pace of rental growth is unsustainable long term, many mortgaged landlords are being squeezed just as tightly as tenants.”
Landlords, who have been hit by the increase in UK interest rate over the last 20 months, have responded by pushing up rents paid by tenants, where they can.
Beveridge adds:
“Higher rents are only going some way towards helping mortgaged landlords balance their books, rather than boosting their profit. This is one of the reasons we haven’t seen large numbers of new landlords come into the market.”
The jump in borrowing costs has also made it harder for tenants to buy their own home instead of renting, with average fixed-rate mortgages over 6%.
The resulting slowdown is prompting many sellers to slash their asking prices. New data from Rightmove morning shows that the proportion of homes on the market reduced in price has hit the highest since January 2011 (more on that shortly).
But overall, asking prices for new homes rose 0.4% in the last month, though were 0.4% lower than a year ago.
The Rightmove index is just new listings.
They also report “36.3% of properties currently for sale have had a price reduction, with an average reduction equating to £22,700 nationally (6.2%)” https://t.co/wQjlGCRpUp— Neal Hudson (@resi_analyst) September 18, 2023
This comes at the start of a busy week for central bankers.
On Thursday, the Bank of England is expected to raise UK interest rates for the 15th time in a row, from 5.25% to 5.5%, as it continues to battle inflation.
But that could be the final hike in the current cycle, with the BoE’s Monetary Policy Committee hopeful that inflation will fall markedly by the end of this year.
Philip Shaw of Investec says:
The committee’s deliberations are set against a background where inflation has trended lower and the economy appears to be weakening, with surveys hinting the service sector may be following manufacturing into a downturn.
The agenda
-
10am BST: Germany’s Bundesbank to release monthly report
-
10am BST: Liz Truss speaks about her plans for economic growth at Institute for Government
-
3pm BST: NAHB/Wells Fargo US housing market index
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